Wize University Managerial Accounting Textbook > Incremental Analysis
Incremental Analysis
Popular Courses
COMM 305
Concordia University
Managerial Accounting
University Study Guides
Managerial Accounting
University Study Guides
ACC 406
Toronto Metropolitan University
ACCTG 322
University of Alberta
ACCT 2230
University of Guelph
ADM 2341
University of Ottawa
COMMERCE 2AB3
McMaster University
ACTG 2020
York University
COMM 1102
Dalhousie University
ACC 312
The University of Texas at Austin
ACC 242
Arizona State University - Tempe
ACC 202
Michigan State University
ACIS 2116
Virginia Tech
ACG 2071
University of Central Florida
BUS1 21
San José State University
BUS-A 306
Indiana University - Bloomington
ACCT 2102
Temple University
ACCTG-202
San Diego State University
MGMT 20100
Purdue University
0:00 / 0:00
Incremental Analysis
An incremental analysis is a decision-making technique used in business to determine the true cost difference between alternatives. Also, called the relevant cost approach, marginal analysis or differential analysis, incremental analysis disregards any sunk cost.
Important Cost Concepts
- Relevant Costs: The costs and revenues that are different under each alternative, whether during the present or in the future.
- Costs that do not differ across alternatives are not relevant
- Opportunity Cost: The monetary value or benefit given up to undertake a different alternative
- A lost benefit from choosing an alternative.
- Avoidable Costs: Costs that can be eliminated, either in part or in full, by choosing one alternative over the other.
- Sunk Costs: A sunk cost is one that has already been incurred in the past and that cannot be recovered. It is irrelevant in decision making.
- For example: The original cost of an old piece of equipment is irrelevant in the decision to replace it.